Energy Recovery Inc (ERII, Financial) released its 8-K filing on October 30, 2024, detailing its financial performance for the third quarter of 2024. The company, known for its engineering-driven technology solutions aimed at enhancing industrial efficiency and sustainability, operates primarily in the Water segment, with additional focus on Emerging Technologies and Corporate segments.
Revenue and Earnings Performance
For Q3 2024, Energy Recovery Inc reported revenue of $38.6 million, aligning with the upper end of its guidance range of $35 to $39 million. This figure slightly missed the analyst estimate of $39.11 million. The company's gross margin stood at 65.1%, a decrease of 480 basis points compared to the same quarter last year, primarily due to increased manufacturing and product mix costs.
Net income for the quarter was $8.5 million, translating to earnings per share of $0.15, which exceeded the analyst estimate of $0.11. The decline in net income from $9.7 million in Q3 2023 was attributed to higher operating expenses, which rose by 7.8% due to increased consulting and employee costs.
Financial Achievements and Challenges
Despite the challenges, Energy Recovery Inc achieved an adjusted EBITDA of $11.6 million. The company maintained a strong cash position with $139.9 million in cash and investments. However, the operating margin decreased to 18.3% from 24.7% in the previous year, highlighting the impact of rising costs.
David Moon, President and CEO, commented, “We delivered strong third quarter results, hitting the upper end of our guidance for the quarter and, although there is still work to be done, we believe we are well-positioned in this quarter to deliver on our guidance for the full year.”
Income Statement and Balance Sheet Insights
The income statement revealed a 4% increase in revenue year-over-year, reaching $38.6 million. However, the cost of revenue also rose, impacting the gross profit, which decreased to $25.1 million from $25.9 million in Q3 2023. Operating expenses increased to $18.1 million, driven by higher general and administrative, sales and marketing, and research and development costs.
On the balance sheet, total assets increased to $262.7 million from $252.9 million at the end of 2023. The company reported a decrease in liabilities to $28.8 million, resulting in a stronger stockholders' equity position of $233.9 million.
Cash Flow and Non-GAAP Measures
Energy Recovery Inc's cash flow from operations was negative at $3.0 million for the quarter, compared to a positive $7.7 million in Q3 2023. The company reported free cash flow of negative $3.2 million. Non-GAAP financial measures showed an adjusted net income of $12.0 million, up 5% from the previous year, and an adjusted net income per share of $0.21.
| Metric | Q3 2024 | Q3 2023 | Change |
|---|---|---|---|
| Revenue | $38.6 million | $37.0 million | +4% |
| Gross Margin | 65.1% | 69.9% | -480 bps |
| Net Income | $8.5 million | $9.7 million | -12% |
| Adjusted EBITDA | $11.6 million | $12.0 million | - |
Analysis and Outlook
Energy Recovery Inc's performance in Q3 2024 reflects its ability to meet revenue expectations despite facing cost pressures. The company's strategic focus on expanding its core desalination and wastewater businesses, along with advancements in CO2 refrigeration, positions it for potential growth. However, the decline in margins and increased operating expenses highlight areas that require attention to sustain profitability.
The company's strong cash position and strategic initiatives, such as the PX G1300 integration into OEM systems, are expected to drive future growth. Investors will be keen to see how these strategies unfold in the coming quarters, particularly with the upcoming investor webinar on November 18, 2024, where further insights into the company's five-year growth plan will be shared.
Explore the complete 8-K earnings release (here) from Energy Recovery Inc for further details.
